A federal parliamentary committee has today recommended foreign citizens and entities be banned from making political donations. Such a ban will not apply to dual Australian citizens in Australia or overseas, or to permanent residents.

The report also recommended further investigation into a ban on foreign donations to other political players, such as activist groups like GetUp!.

Labor and the Greens separately produced dissenting reports that supported a ban on foreign political donations, but rejected extending it to activist groups.

Liberal Democrat senator David Leyonhjelm rejected a ban on foreign donations. He claims there is no evidence of a problem specific to foreign donations.

It’s unclear whether such a ban would be compatible with our constitutionally protected freedom of political communication. And banning foreign donations is just one element in the reform Australia’s system desperately needs.

Why ban foreign donations?

The rationale for banning foreign donations is to stop the threat of foreign interests undermining Australian democracy. The concern is that foreign people or entities can exercise an unduly large influence on our politicians through generous donations. And we don’t want our politicians beholden to foreign powers at the expense of Australian interests.

Other liberal democracies similar to Australia, like the UK, US and Canada, ban foreign donations. New Zealand caps them at NZ$1,500.

The British laws banning foreign donations were introduced after scandals arising from the government accepting donations from dubious sources. After the Conservative Party refused to send British troops to intervene to stop Serbian atrocities in the Bosnian War, the party received a donation of £18,000 from London associates of the then Serbian leader Slobodan Milosevic.

The Tories also received £440,000 from the fugitive Polly Peck tycoon, Asil Nadir, who fled to northern Cyprus in 1993 after being charged with fraud.

In Australia, the Liberal Party received major foreign political donations in the last financial year. Hong Kong Kingson Investment and Kingold Group, two companies owned by property billionaire Chau Chak Wing, gave A$700,000 in total. Kingson Investment also gave A$100,000 to Labor.

Yet, in 2015-16, foreign donations were a paltry 2.6% of total donations to political parties. In the last seven election periods from 1998-99 to 2016, foreign donations have amounted to between 0.03% to 6.13% of total donations.

Is a ban constitutional?

Australia has a constitutionally protected freedom to communicate on political matters. This allows us to make a free and informed choice about who we vote for to represent us in parliament.

Accordingly, the High Court has ruled that any limitations on the freedom of political communication must be proportionate and have a legitimate purpose. So, any ban on political donations has to be carefully limited to be compatible with the constitutional freedom of political communication.

A ban on foreign donations clearly limits political communication by restricting the source of funds available to political parties and candidates to meet the costs of political communication. Banning foreign donations would seem to have a legitimate purpose: to reduce undue foreign influence on Australian politics and public policy.

The bigger issue is whether banning foreign donations is a proportional response to justify limiting freedom of political communication. The High Court has devised a very complex multi-pronged test for assessing proportionality. This includes considering whether:

there is a rational connection to the purpose of limiting the freedom;

there is a compelling alternative that is less restrictive; and

the importance of the purpose served by the law outweighs the extent of the restriction on the freedom.

It is difficult to predict how the court might rule on this.

The High Court has previously permitted laws that banned donations from a certain class of people. The court has upheld a New South Wales scheme that banned donations from property developers due to the history of corruption in the state. This means it is possible to ban donations from a certain group, such as foreigners, where there is evidence of a serious risk of corruption.

But in this particular case, there was evidence of corruption implicating property developers borne out in several reports by the NSW Independent Commission Against Corruption. It is unclear whether it can be proven there has been corruption in Australia due to foreign donations.

Australia does not have a federal anti-corruption body that has investigated these issues. Also, the proportion of foreign donations in Australia is small. There may not be enough proof that foreigners pose a particular threat to the integrity of the Australian electoral system. This means the High Court may strike down a law banning foreign donations as unconstitutional.

Casting the net too wide and banning all donations from non-citizens, unions and corporations will be unconstitutional. The High Court has struck down a scheme in NSW that only allowed donations from individuals on the electoral roll, thus banning donations from corporations, unions and non-citizens. There was no evidence that donations by non-voters had a greater corrupting influence than other donations.

What about activist groups?

A ban on foreign donations to activist groups reduces the ability of these groups to engage in political communication; it decreases their funds to launch political campaigns seeking change in government policy and decision-making. The ban’s purpose would again be to reduce foreign influences on Australia’s political system.

The ban may not be a proportionate response to reducing the influence of foreign interests on domestic policy.

Again, there is unlikely to be evidence that foreigners donating to activist groups corrupts Australia’s electoral system. There is a more tenuous link between activist groups and foreign influence on domestic policy, compared to political parties who are elected to government.

Also, the proportion of foreign donations to activist groups might not be significant. GetUp! receives about 1% of its annual income, and about A$300,000 in the past two years, from foreign sources.

So, a ban on foreign donations to activist groups may not be constitutionally valid.

Will this fix the system?

If ruled constitutional, a ban will certainly reduce the impact of overseas interests on domestic policy.

But our system needs more holistic change. For one, the donation rules do not promote political equality. Caps on political donations of, say, A$1,000 would better level the playing field, and are more likely to be constitutional.

Donations should be disclosed in real time, rather than once a year. The rules also need to be tightened to eliminate loopholes, like donation-splitting between associated entities.

Governments of all stripes need to do more to reduce the influence of money in our politics and give people a more equal voice in democracy.